July 2014

At one point my grandfather was the richest man between Orlando and Tampa, and I figure that about $15K/year (in 2014-value dollars) of his money has been spent on me, one way or another, since my birth. That's a substantial dole to live on, and--needless to say--I am extremely grateful to my late grandfather and grandmother for giving it to me. But has this harmed me?

...about the underlying science of climate change, saying it would be better to wait for more data, analysis and time to act.... We do face significant uncertainty.... That uncertainty, however, is an argument for doing more and doing it sooner.... Acting now to put in place policies that reduce carbon emissions is like taking out an insurance policy.... The costs of achieving a fixed climate change goal would be 40 percent larger if we waited a decade to take action. And those costs could grow exponentially with a longer wait.... Delay means losing years of research in effective carbon-reducing technologies, along with bigger investments in older, carbon-intensive technologies, meaning that we would have to adopt more stringent and therefore more costly measures in the future to make up for lost time.... Rather than waiting to address these challenges in the future, taking action today will also save us substantial sums. The United States cannot solve climate change alone. But we are well-positioned to lead the way--and the sooner we act, the sooner the world will join us.

I want to highlight the post by Nick Bunker yesterday over at Equitable Growth Value Added on the shape of the GDP growth number. Our 4%/year first-quarter real GDP growth rate was only a 2.3%/year growth rate for demand--the rest was inventories. And our (still anemic) growth in consumption continues to be largely growth in durables consumption. Well worth your reading, if you haven't already:

estimates [real] GDP grew by 4 percent on an annualized basis during the second quarter of 2014.... [This] is the first of three estimates... and is subject to revisions.... The largest contributor... gross private domestic investment... added 2.57 percentage points... [with] 1.66 percentage points of that contribution was an increase in private inventories.... Government... [purchases] added 0.30 percentage points.... Net export... were a drag... subtracting 0.61 percentage points.... Personal consumption expenditures added 1.69 percentage points to the total growth rate... [with] durable goods... at 0.99 percentage points....

[Since] the end of the Great Recession... inflation-adjustment amount of durable goods consumption increased 26.6 percent. For nondurable goods, it only increased by 5.5 percent and for services 5.1 percent.... Atif Mian and Amir Sufi point out... consumption of nondurable goods and services have been historically weak during this recovery...

Let's look at consumption as a whole:

Consumption of durables:

And consumption of services:

The other way to frame the consumption data is, of course, to say that right now consumption of services is 1% below the share of potential GDP it attained at the last business cycle peak and that consumption of durable goods is 20% below the share of potential GDP it attained at the last business cycle peak. Yes, consumption of durable goods is growing much more rapidly than consumption of services. But might this not be a statement about the shape of the downturn, and Mike the right judgment on it be that our system of financing consumer durables purchases and still substantially broken?

Yet another thing I ought to have a stronger and more confidently-informed view of than I do...

...'climate change occurs no matter what', but that the EPA’s recent efforts to reduce emissions from existing power plants are 'outside of the confines of the law', and 'an excuse to grow government, raise taxes and slow down economic growth'. Speaking at a breakfast hosted by the Christian Science Monitor in Washington, Rep. Ryan said that he would argue that the 'federal government, with all its tax and regulatory schemes' can’t do anything about climate change. He said that what climate regulations 'end up doing is making the U.S. economy less competitive'.... Section 111(d) of the Clean Air Act requires the EPA to develop regulations for 'air pollution which may endanger public health or welfare'. In 2007 and again in 2011, the Supreme Court ruled that carbon pollution fits under that category. EPA chief Gina McCarthy recently said that she wouldn’t put forth a rule that 'doesn’t respect the Clean Air Act and isn’t legally solid', and that she is confident the regulations will survive any legal challenge...."

Neel Kashkari--who has proven himself an extremely reliable and conscientious employee in the past--spends a week in Fresno. He tries and fails to find work. Someone whose market wage is in the seven figures--he is not a "zero marginal product" middle-aged male worker. And yet...

We need more stimulus: fiscal, monetary, banking, housing. We need it now!

@arindube: OK folks, it's official now: most economists believe in fiscal stimulus. We are all Keynesians now again! http://www.igmchicago.org/igm-economic-experts-panel/poll-results?SurveyID=SV_5bfARfqluG9VYrP

.@arindube do you understand what shifted Alesina from ARRA effective in 2012 to ARRA ineffective today?

@arindube: .@delong No idea why Alesina went from believing in neoclassical multiplier (+ emp but - welfare) to...something else. Must be the evidence.

@PatrickIber: Maybe there should be some kind of rule where you aren't allowed to destroy things with military technology that costs more than the target

.@PatrickIber U would think that in that case you could simply buy it and truck it away…

@PatrickIber: .@delong With any luck we've just revolutionized the future of warfare

@nothingmonstrd: @delong @PatrickIber Isn't that the Ankh-Morpork national anthem?

.@JustinWolfers still, growth likely to be at or below potential for 2014, no?

@ddayen: "Could you believe Dems could be attracted to a blank-slate candidate where everyone sees what they want to see?" http://www.salon.com/2014/07/30/rick_perlstein_ronald_reagan_absolved_americans_in_a_priestly_role_to_contend_with_sin_the_consequences_are_all_around_us_today/

.@rickperlstein only article I read by TNR’s Michael Kimmidge “This Isn’t Return of Cold War. It’s Worse” about Crimea. Is he unbalanced?

Must- and Should-Reads:

Paul Krugman:Circles of Influence: "Thomas Palley is upset.... I was reacting to... his claim that mainstreamers like me were looking in all the wrong places.... This wasn’t about intellectual priority--it was about refuting a claim of ideological blindness.... I’m willing to accept that Palley was somewhat ahead of the curve. And it’s... true that... those like me... think of it as an arc from Tobin to Akerlof-Dickens-Perry to Daly and Hobijn.... There’s so much stuff out there, and you have to filter somehow, so you mainly read stuff by people you know and people they tell you are worth reading.... This is a tendency one ought to lean against.... On the other hand, if you want the mainstream guys to listen to you, you probably shouldn’t accuse them of being denser and more rigid than they really are..."

Gary Burtless:Unemployment and the “Skills Mismatch” Story: Overblown and Unpersuasive: "We shouldn’t be surprised when shrinking unemployment makes it harder for employers to fill job vacancies.... Economists have examined the skill mix of workers laid off from shrinking industries and compared it with the mix of occupational skills needed in industries that are growing.... To an economist, the most accessible and persuasive evidence demonstrating a skills shortage should be found in wage data. If employers urgently need workers with skills in short supply, we expect them to offer higher pay.... Where is the evidence of soaring pay for workers whose skills are in short supply?... It is cheap for employers to claim qualified workers are in short supply.... When employers are unwilling to offer better compensation to fill their skill needs, it is reasonable to ask how urgently those skills are really needed."

Mark Thoma:Why the Rich Should Call for Income Redistribution: "If inequality continues to rise... redistribution... will happen.... The only question is what form.... Thus, the rich and the powerful... can bury their heads in the sand... [or] recognize that something needs to be done... and support the needed investment in the middle and lower classes that will make it possible for them to gain a larger and more equitable share..."

Josh Bivens et al.:State Cuts to Jobless Benefits Did Not Help Workers or Taxpayers: "most state unemployment insurance fund accounts became insolvent in the wake of the Great Recession because states did not adequately fund them in the early to mid-2000s recovery. States that responded to the insolvency by cutting the duration of unemployment benefits did not save significant amounts of money or boost employment."

Brad DeLong (2012): Nobody Believes Me When I Tell Them How Wacka-Wacka Paul Ryan's Views on Monetary Policy Are: "[He] is on record as saying: 'I always go back to, you know, Francisco d’Anconia’s speech (at Bill Taggart’s wedding) on money when I think about monetary policy...' That means... 'It is not the moochers or the looters who give value to money.... Those pieces of paper, which should have been gold, are a token of honor... of hope that somewhere in the world around you there are men who will not default on that moral principle which is the root of money...' That says not that we ought to be on a gold standard, but that we should have a gold coinage--that we should not use credit cards or checks or currency at all..."

Ezra Klein:Why I have become more pessimistic about Israel: "I want to see Israel succeed. I want to see it thrive. And that makes this moment in Israeli history painful to watch. The state of Israel is supposed to make Jews safer. But Israel itself is terrifyingly vulnerable: it is home to 6 million Jews in a tiny sliver of land surrounded on all sides by enemies.... The nightmares are easy to conjure: the Six-Day War ending another way, or a dirty bomb detonating in Tel Aviv. Israel's political ideals are similarly imperiled: it is a liberal democracy that intends to remain a Jewish state. The problem is that Jews might become a minority in the territory they control... and even if they don't, liberal democracies do not deprive millions of their native residents of a say in their government. Israel's problems aren't easy to solve--and Israel cannot solve them without moderate leadership in Palestine and the region. But in recent years Israel seems to be making its problems insoluble. The continued growth of the settlements is morally indefensible, but it's also deeply counterproductive.... Israel's peace movement has collapsed, and its government has become more bellicose and aggressive: Avigdor Lieberman's presence in the cabinet is painful proof that Israel's fear is outpacing its hope. The excuse used to be that Israel did not have a partner for peace, and that was true. But it's clear today that Israel itself is not much of a partner for peace, either..."

Paul Krugman:Useless Expertise: "Justin Wolfers calls our attention to the latest IGM survey of economic experts.... IGM has been trying to pose regular questions to a more or less balanced panel of well-regarded economists.... And when it comes to stimulus, the consensus is fairly overwhelming: by 36 to 1, those responding believe that the ARRA reduced unemployment, and by 25 to 2 they believe that it was beneficial. This is, if you think about it, very depressing.... Policy has been dominated by pro-austerity views while stimulus has become a dirty word in politics. What this says is that in practical terms the professional consensus doesn’t matter. Alberto Alesina may be literally the odd man out, the only member of the panel who doesn’t believe that the fiscal multiplier is positive--but back when key decisions were being made, it was 'Alesina’s hour' in Europe and among Republicans.... You fairly often hear people describe the very poor track record of policy since 2008 as an indictment of economists, who clearly didn’t have the right answers. But actually mainstream macro has a pretty decent track record since 2008.... The other is that you have to wonder what good we’re all doing. If policymakers ignore professional consensus, and if views about how the world works are completely insensitive to evidence and results, does knowledge matter. If a tree falls in the academic forest, but nobody in Brussels or Washington hears it, did it make a sound?"

The first glimpse of Lieutenant General George S. Patton, Jr., for many soldiers came in Avranches, where he leaped from his jeep into an umbrella-covered police box and directed convoy traffic through a congested roundabout for ninety minutes. Assigned by Bradley to oversee VIII Corps’s drive south, Patton had helped shove seven divisions past Avranches in seventy-two hours, cigar smoldering as he snarled at occasional Luftwaffe marauders, “Those goddamned bastards, those rotten sons-of-bitches! We’ll get them.” When a subordinate called to report his position, Patton bellowed, “Hang up and keep going.” In a Norman landscape of smashed vehicles, grass fires, and charred German bodies, he added, “Could anything be more magnificent? Compared to war, all other forms of human endeavor shrink to insignificance. God, how I love it.”

**Over at Equitable Growth: Simon Wren-Lewis and Nick Rowe annoy each other by arguing over whose position is more politically hopeless, as well as whether the right way to think of aggregate demand deficiencies is as:

being always and everywhere and monetary phenomenon.

being somewhat more complicated--usually but not always a monetary phenomenon.

Whilst marching from Portugal to a position which commands the approach to Madrid and the French forces, my officers have been diligently complying with your requests which have been sent by H.M. ship from London to Lisbon and thence by dispatch to our headquarters.

We have enumerated our saddles, bridles, tents and tent poles, and all manner of sundry items for which His Majesty's Government holds me accountable. I have dispatched reports on the character, wit, and spleen of every officer. Each item and every farthing has been accounted for, with two regrettable exceptions for which I beg your indulgence.

New Year’s Day, 2014, marks the 20th anniversary of the North American Free Trade Agreement (NAFTA). The Agreement created a common market for goods, services and investment capital with Canada and Mexico. And it opened the door through which American workers were shoved, unprepared, into a brutal global competition for jobs that has cut their living standards and is destroying their future. NAFTA’s birth was bi-partisan—conceived by Ronald Reagan, negotiated by George Bush I, and pushed through the US Congress by Bill Clinton in alliance with Congressional Republicans and corporate lobbyists....

NAFTA directly cost the United States a net loss of 700,000 jobs.... And the economic dislocation in Mexico increased the the flow of undocumented workers into the United States.... By any measure, NAFTA and its sequels has been a major contributor to the rising inequality of incomes and wealth that Barack Obama bemoans in his speeches.... The agreements traded away the interests of American workers in favor of the interests of American corporations.... NAFTA’s fundamental purpose was... to free multinational corporations from public regulation in the U.S., Mexico, Canada, and eventually all over the world.... The 20th anniversary of NAFTA stands as a grim reminder of how little our political leaders and TV talking heads—despite their crocodile tears over jobs and inequality—really care about the average American who must work for a living...READ MOAR

...Who wouldn’t want that? But the consequences of that absolution are all around us today. The inability to contend with climate change. The inability to call elites to account who wrecked the economy in 2008. The inability to reckon with the times when we fall short.... When Samantha Power is chosen to be ambassador to the U.N.; she’d written a magazine article in 2003 in which she wrote American foreign policy needed a 'historical reckoning' for crimes 'committed or sponsored'. That’s the kind of reckoning we were having in the 1970s, with the Church committee. Marco Rubio brought this up in her confirmation hearing and asked her for examples of the crimes, and the response was that America is the greatest country in the world and has nothing to apologize for. So that’s where we’re at today.... He believed strongly that moderates had no place in the Republican Party.... Pundits then and now believed the problem for Republicans was an inability to broaden their base. Reagan always insisted on the opposite..."

Liberal Republicans started becoming Democrats during the New Deal, and (Maine aside) had essentially all migrated across the aisle by the start of the 1990s. As the Republican Party moved right, moderate Republicans should have followed them. But they did not. As Norm Ornstein said:

...I do think there is simply a cultural difference. For Republicans, it’s almost more of a religion or a tribal identification than it is for Democrats. That is sometimes really curious to see. Watch Olympia Snow.... I worked with Olympia very closely on the campaign reform staff. She was under enormous pressure from McConnell and others.... Trying to find a common ground... we [had come] up with... Snow-Jeffords amendment--which was a way of keeping corporations and unions out of elections and communications when we are close to elections.... It was the target... of Citizens United. So we get the response to Citizens United... a bill that passes the House... gets to the Senate and all 59 Democrats support it. And not one Republican, including Snowe—this was her most important legislative achievement--would vote for cloture.... It’s almost like you are in a religion. You look at misbehavior on the part of the leaders of that religion, and you are shocked and dismayed, but you are not leaving your religion. And you are still going to go to church: you just can’t give up something that you held in a lifelong way. I think Democrats are just different in that front. They don’t have the same discipline...

...makes it harder for employers to fill job vacancies.... Economists have examined the skill mix of workers laid off from shrinking industries and compared it with the mix of occupational skills needed in industries that are growing.... To an economist, the most accessible and persuasive evidence demonstrating a skills shortage should be found in wage data. If employers urgently need workers with skills in short supply, we expect them to offer higher pay.... Where is the evidence of soaring pay for workers whose skills are in short supply?... It is cheap for employers to claim qualified workers are in short supply.... When employers are unwilling to offer better compensation to fill their skill needs, it is reasonable to ask how urgently those skills are really needed."

...Who wouldn’t want that? But the consequences of that absolution are all around us today. The inability to contend with climate change. The inability to call elites to account who wrecked the economy in 2008. The inability to reckon with the times when we fall short.... When Samantha Power is chosen to be ambassador to the U.N.; she’d written a magazine article in 2003 in which she wrote American foreign policy needed a 'historical reckoning' for crimes 'committed or sponsored'. That’s the kind of reckoning we were having in the 1970s, with the Church committee. Marco Rubio brought this up in her confirmation hearing and asked her for examples of the crimes, and the response was that America is the greatest country in the world and has nothing to apologize for. So that’s where we’re at today.... He believed strongly that moderates had no place in the Republican Party.... Pundits then and now believed the problem for Republicans was an inability to broaden their base. Reagan always insisted on the opposite..."

The interesting thing is that two years earlier, Alberto Alesina agreed that "because of the American Recovery and Reinvestment Act of 2009, the U.S. unemployment rate was lower at the end of 2010 than it would have been without the stimulus bill."

I do wonder what pieces of evidence could possibly have made him more pessimistic about the effects of the ARRA on unemployment over the past 30 months. What do people think?

Back in February 2012, it was Caroline Hoxby who strongly disagreed with the statement that the ARRA had reduced the unemployment rate; Ed Lazear who disagreed; and Ken Judd who was uncertain. This time Hoxby does not answer, Lazear is off the panel, and Judd agrees that the ARRA lowered unemployment.

I was reacting to... his claim that mainstreamers like me were looking in all the wrong places.... This wasn’t about intellectual priority--it was about refuting a claim of ideological blindness.... I’m willing to accept that Palley was somewhat ahead of the curve. And it’s... true that... those like me... think of it as an arc from Tobin to Akerlof-Dickens-Perry to Daly and Hobijn.... There’s so much stuff out there, and you have to filter somehow, so you mainly read stuff by people you know and people they tell you are worth reading.... This is a tendency one ought to lean against.... On the other hand, if you want the mainstream guys to listen to you, you probably shouldn’t accuse them of being denser and more rigid than they really are...

Me? I tend to think that if you cannot trace the idea to Smith, Ricardo, Malthus, Say, Mill, Bagehot, Walras, Wicksell, Keynes, Arrow, or Samuelson, you aren't trying hard enough. And once you have traced the idea to one of them and cited them, you are safely on base...

@MichaelSLinden: Alberto Alesina, the go-to guy for austerity backers, is the only economist on the IGM panel to disagree that ARRA reduced unemployment.

.@MichaelSLinden (1/3) Curiously, back in 2012 Alesina said the ARRA did reduce unemployment.

.@MichaelSLinden (2/3) Alesina is thus the only economist I am aware of to have become less confident in the power of

.@MichaelSLinden (3/3) fiscal policy at the ZLB since 2012. A remarkable example of swimming against the empirical current cc:

.@MichaelSLinden (4/3) other shifts in the panel: Hoxby: no —> no answer. Judd: uncertain —> yes. Lazear: no —> off the panel

.@arindube do you understand what shifted Alesina from ARRA-effective in 2012 to ARRA-ineffective today?

Should-Reads:

David Beckworth:The Other Important Legacy of World War One: "An important point I... could not find.... WWI shattered the classical gold standard of 1870-1914, which had worked relatively well, and replaced it with an incredibly flawed one to which many attribute... the severity and global reach of the Great Depression in the 1930s. And the Great Depression... brought the Nazis to power.... Barry Eichengreen and Peter Temin.... 'At some level... the Nazis were the party of the Depression. They were a fringe group in the 1920s and grew to electoral prominence only in 1930 when economic conditions deteriorated. They gained even more seats in the Reichstag in the first election of 1932, but lost seats in the second election later that year as economic conditions appeared to improve.... Almost any model would say that better economic conditions would have decreased political support for the Nazis and therefore the probability that Hindenburg would have asked Hitler to be chancellor.' So far all the problems WWI created, the flawed interwar gold standard was probably one of the the more important ones. It led to the Great Depression which, in turn, guaranteed the rise of the Nazis and another world war. The big lesson, then, is getting the international monetary system right matters a lot."

Walter Shapiro:Hillary for Liberals: "Hillary has been through two disastrous disorganized White Houses under Bill Clinton and Obama.... She would come into the White House with a greater understanding of White House dysfunction than anyone in Democratic Party history... steel you against creating a White House where people believe they’ve invented the wheel, that they’re geniuses.... At this point, NSA spying and drone attacks are just not voting issues for liberals. Getting tough with Wall Street--like single-payer health insurance--was something much more likely to trigger an adrenaline rush for the left in 2009 than in 2016..."

Jonathan Chait:I Have Mocked Ross Douthat One Time too Many: "for his fatal flaw of detecting signs of ideological moderation in a succession of Republican figures like Sarah Palin, Eric Cantor, Tim Pawlenty, and others. Now he has finally snapped.... My piece notes that Douthat praises Ryan for his moderation, while dismissing the 2012 GOP ticket as hopelessly plutocratic, yet he defended Romney and Ryan against exactly this charge at the time. Douthat points out that he also devoted numerous items to complaining about Romney’s upper-class tilt. And yeah, he certainly did.... I argued... with Douthat--me insisting Romney’s plan cut taxes for the rich; he insisting it did not.... [And] the situations are fairly analogous. Ryan now, like Romney-Ryan then, is making a series of irreconcilable promises. Douthat is treating the more mainstream version of those premises as binding, and the more extreme promises as null and void.... What he calls 'cherry-picking', I call 'condensing'. But a less patient person would have lashed out years ago..."

Kevin Kelly:You Are Not Late: "Can you imagine how awesome it would have been to be an entrepreneur in 1985 when almost any dot com name you wanted was available? All words; short ones, cool ones. All you had to do was ask. It didn’t even cost anything to claim.... Thirty years later the internet feels saturated, bloated, overstuffed.... Even if you could manage to squeeze in another tiny innovation, who would notice it?.... But, but... here is the thing. In terms of the internet, nothing has happened yet.... Most of the greatest products running the lives of citizens in 2044 were not invented until after 2014.... Here is the other thing the greybeards in 2044 will tell you: Can you imagine how awesome it would have been to be an entrepreneur in 2014? It was a wide-open frontier! You could pick almost any category X and add some AI to it, put it on the cloud. Few devices had more than one or two sensors in them, unlike the hundreds now. Expectations and barriers were low. It was easy to be the first. And then they would sigh, 'Oh, if only we realized how possible everything was back then!' So, the truth: Right now, today, in 2014 is the best time to start something on the internet.... Today truly is a wide open frontier. It is the best time EVER in human history to begin. You are not late."

Paul Krugman:How Prophets Get Lonely: "At Bloomberg View, Leonid Bershinksy weeps over the cruel world that for some reason isn’t listening to Jaime Caruana of the BIS, who warns that we must raise interest rates now now now. Why is this prophet so lonely? Well, it might have something to do with the fact that three years ago Caruana and the BIS warned that interest rates must rise to avert a surge of inflation. That didn’t happen.... Now, everyone gets things wrong sometimes. But when that happens, you’re supposed to think about why you were wrong, and reconsider your policy views. If the BIS did any soul-searching, nobody else noticed.... Why, exactly, should anyone take its views seriously?... But being a hard-money guy seems to mean never having to reconsider..."

...that worked on versions of the bill in 2009--combined with a close look at the history of the phrase itself, and interviews with staffers directly involved in the drafting of the statutes--strongly undercut the argument that the law did not intend or provide subsidies to those on the federal exchange...

They're back.... The vigilantes... appear to be returning with a vengeance now that Congress and the Federal Reserve have flooded the world with dollars to beat the recession. Treasury yields leapt again yesterday at the long end, with the 10-year note climbing above 3.7%.... Investors are now calculating the risks of renewed dollar inflation. They have cause to be worried, given Washington's astonishing bet on fiscal and monetary reflation.... Chinese and other dollar asset holders are nervous. They wonder--as do we--whether the unspoken Beltway strategy is to pay off this debt by inflating away its value.... The Fed is desperate to keep mortgage rates low to reflate the housing market, and last week it promised to inject hundreds of billions of dollars.... This week the bond vigilantes are showing what they think of that offer, bidding up yields even higher. It's not going too far to say we are watching a showdown between Fed Chairman Ben Bernanke and bond investors, otherwise known as the financial markets. When in doubt, bet on the markets.

...That's my personal view.... It may look like there is temporary improvement because they have artificially infused the economy with government money, but the consequences of that will, as sure as we're sitting here, will rear its head...

...I take pride in the fact that when the sirens go off, I demonstratively refrain from heading to a protected space. It's not because I'm courageous. I have my fears. But rationality is not necessarily a dirty word. The chance of being injured by the “flying pipes” in Gush Dan are immeasurably lower than the chances of being hurt on the sidewalks of Tel Aviv during times of calm, not to speak of the risk of catching a fatal virus when entering a hospital. The chances are so low that the fact that Israelis are responding en masse to the directives of the Home Front Command does not reflect a reasonable means of protection; rather, it is primarily an expression of participation in a national carnival.

...has so far claimed more than 670 lives.... Now it has reached Lagos in Nigeria.... Ebola... causes extensive internal bleeding, and can lead to those infected dying from shock. Initially, those infected experience a sudden onset of fever, muscle pain, weakness, headaches, a sore throat and vomiting and diarrhoea.... Ebola is highly contagious and can be transmitted even after those infected have died, because the virus is transmitted via bodily fluids. It has a 90% fatality rate.... Bausch thinks it is unlikely that the outbreak will spread through Europe or the US if someone infected gets on an international plane.... Currently there is no cure...

Over at Project Syndicate Ten years ago we had ridden the bust of the internet bubble, picked ourselves up, and continued on. It was true that it had turned out to be harder than people expected to profit from tutoring communications technologies. That, however spoke to the division of the surplus between consumers and producers--not the surplus from the technologies. The share of demand spent on such technologies looked to be rising. The mindshare of such technologies looked to be rising much more rapidly. READ MOAR at Equitable Growth

In the early hours of July 29, 1914, Czar Nicholas II of Russia and his first cousin, Kaiser Wilhelm II of Germany, begin a frantic exchange of telegrams regarding the newly erupted war in the Balkan region and the possibility of its escalation into a general European war.

...San Francisco has been erupting with periodic protests aimed, rather imprecisely, at a nexus of grievances related to gentrification, affordable housing, transportation, the tech industry, newcomers to the city, its changing skyline and Silicon Valley to the south. The city is screaming, although at what its protestors seem a little confused. 'In my view, the whole debate here misses the point', says Enrico Moretti.... 'People are marching against Google buses when they should be marching for more housing permits.' At the root of San Francisco's tension is a mismatch of supply and demand: Affluent workers have been flocking to the area for its tech jobs, but as the number of jobs in the region has grown, the number of housing units to accommodate people taking them hasn't remotely kept pace. As a result, rents are going up. Low-income residents are pushed out. Landlords who see more lucrative opportunity in condo conversions have ramped up evictions. 'Once I started seeing what was going on in the San Francisco public debate, I got appalled by the lack of understanding of basic economics among the general public, the protesters', Moretti says. 'And it’s even more problematic among policymakers.' The culprit here isn't really the tech industry. It's much-harder-to-protest land-use policy. And from Moretti's point of view, the rest of us should care... because the economic repercussions of such local decisions stretch nationwide...

Yuriy Gorodnichenko:MH17: "The separatists, or more appropriately terrorists, have by now killed hundreds of people in Slovyansk, Kramatorsk, Donetsk, Luhansk and many other cities in Eastern Ukraine. And their violence and brutality has only been escalating.... The separatists firmly believed that they had shot down another military airplane and quickly claimed credit for it in social media. However, slowly they realized that the airplane was a civilian one.... This would have never happened if Russia’s President Vladimir Putin did not give BUKs, tanks, guns and other arms to the terrorists.... This would also never have happened if the international community had not been so complacent about Putin’s aggression against Ukraine.... The time has come for the international community to show leadership and put together a united front to stop this evil. It could not be any more black and white than it is now."

David Atkins:The four basic American reactions to record inequality: "Those on the progressive left understand that at some level the takings of the top 4% constitute a theft from the other 96% who have lost over a third of their net worth.... Those in the neoliberal/center-left camp do believe that modern inequality is a problem, but that this too shall pass and we can trudge along as usual after a recovery.... Then you have the center-right. They take rational market theory as an article of faith, believing with religious fervor that if the labor and capital markets are allowed to act unimpeded, then both labor and capital will find a comfortable, fair and balanced price. No amount of evidence can convince them that both human life and dignity are priced incredibly cheap on the open market, or that that late 19th century was not, in fact, the model of a moral or economically functional society.... Finally, there is the far right. These are the True Believers: the ones who not only buy into the center-right line, but also the raw Objectivism of Ayn Rand and Fox News that says that the only economic injustice in society is the one being perpetrated by the government itself, taking money from the 'deserving' and giving it to the 'undeserving'. In this view, the only inequality that matters to them is redistributive taxation to “others” in society..."

Danny Vinik:Richard Fisher Has Wrongly Warned of Inflation 5 Times Since 2011: "This isn't the first time Fisher has been at odds with his colleagues. When the Fed undertook 'Operation Twist' in 2011, Fisher was one of three members of the Federal Open Market Committee... to dissent. He's... been the committee’s staunchest inflation hawk... Monday’s... was just the latest of many warnings.... April 8, 2011: 'Having done our job, I see many risks to the Federal Reserve overstaying its position...' September 27, 2011: 'I might conclude by sharing my concerns about the prospect of temporarily allowing more inflation as a means of unlocking expansion in final demand.... [O]nce unleashed, inflation combines with stagnation to make stagflation...' April 10, 2012: 'I’m just reporting what I hear on the street, which is a real concern that with our expanded balance sheet, we are just a little bit in an ember of what could become an inflationary fire.' September 20, 2012: 'I do not see an overall argument for letting inflation rise to levels where we might scare the market...' 5. June 4, 2013: 'I argue that the Fed is, at best, pushing on a string and, at worst, building up kindling for speculation and eventually, a massive shipboard fire of inflation.' So take Fisher's predictions with a grain of salt. More than anyone else on the FOMC, he has been wrong about the economic implications of Fed policy...

...has been at odds with his colleagues. When the Fed undertook 'Operation Twist' in 2011, Fisher was one of three members of the Federal Open Market Committee... to dissent. He's... been the committee’s staunchest inflation hawk... Monday’s... was just the latest of many warnings.... April 8, 2011: 'Having done our job, I see many risks to the Federal Reserve overstaying its position...' September 27, 2011: 'I might conclude by sharing my concerns about the prospect of temporarily allowing more inflation as a means of unlocking expansion in final demand.... [O]nce unleashed, inflation combines with stagnation to make stagflation...' April 10, 2012: 'I’m just reporting what I hear on the street, which is a real concern that with our expanded balance sheet, we are just a little bit in an ember of what could become an inflationary fire.' September 20, 2012: 'I do not see an overall argument for letting inflation rise to levels where we might scare the market...' 5. June 4, 2013: 'I argue that the Fed is, at best, pushing on a string and, at worst, building up kindling for speculation and eventually, a massive shipboard fire of inflation.' So take Fisher's predictions with a grain of salt. More than anyone else on the FOMC, he has been wrong about the economic implications of Fed policy...

Over at Equitable Growth: I have been waiting to post this until now when there are only twelve months before the end date of my bet with Noah Smith on whether inflation would break 5% over any twelve-month period without a high-pressure labor market. I took the "no". He took the "yes" and did so, from my perspective, irrationally--he only took 50-1, while he should have demanded odds an order of magnitude greater. That the final twelve-month window of our bet is now running means it is time to set out my thoughts on the trahison des clercs of so much of the academic economics profession over the past seven years. READ MOAR

...you have no doubt noticed that many of their publications are, well, fact-challenged.... Today, I turn from Obamacare godfather Stuart Butler to the new Heritage chief economist, Stephen Moore.... SantaFeMarie sums up the sordid story of Moore's July 7 column in the Kansas City Star where, trying to defend himself and Arthur Laffer from the well-deserved ire of Paul Krugman, he claims that 0/low-tax states have seen better job growth than high-tax states. In the original article, he wrote:

No-income-tax Texas gained 1 million jobs over the last five years, California, with its 13 percent tax rate, managed to lose jobs. Oops. Florida gained hundreds of thousands of jobs while New York lost jobs. Oops.

I have resolved to instruct the Ministers of my Household and
Foreign Affairs to notify the Royal Serbian Government of the
beginning of a state of war between the Monarchy and Serbia. In
this fateful hour I feel the need of turning to my beloved peoples.
I command you, therefore, to publish the inclosed manifesto.

UPDATE (June 2014): We now have one year to run, which means that if there is going to be 5% inflation, it has to commence now. So how much should I charge Noah wants to back out of his position? On the one hand, I think if I buy it back from him I should do so at 99.99 cents on the dollar. At this point I think that core inflation above 5% with unemployment above 6% starting now for the next year really is a 10,000-1 shot, even with fat tails. On the other hand, I am reminded of Damon Runyon's: "Nothing between humans is more than 3-1."

More interesting, perhaps, is John Cochrane: It is now more than five-and-a-half years since John Cochrane began ranting about how the biggest danger facing the U.S. economy was not a persistent 8% shortfall of production relative to potential output, but rather that the doubling of the monetary base by the Federal Reserve from $700 billion to $1.4 trillion and the projected 50% expansion of the national debt from automatic stabilizers and an $800 billion expansionary discretionary fiscal policy would turn the U.S. into "Argentina".

So far no recognition on his part that perhaps he should perform a Bayesian update on his beliefs.

I have conducted a Bayesian update on my beliefs: back in 2007 I was 5% Austrian, 5% RBC, 30% Keynesian, 60% monetarist; now I am 1% Austrian, 1% RBC, 28% monetarist, 70% Keynesian. Why hasn't he conducted a Bayesian update on his?

A 5%/year inflation rate is not "Argentina", but we want to bend over backward to give the John Cochrane side a chance…

The bet, made in July 2012:

If, at any time between 7/28/2012 and 7/28/2015, core consumer prices, as recorded in the FRED database series CPILFESL, are up more than 5% in the preceding 12 months, and if over the same 1-year period monthly U3 unemployment (as recorded in FRED database series UNRATE) has not averaged below 6%, then Brad DeLong agrees to buy Noah Smith one dinner at Zachary's Pizza at 1853 Solano Ave. in Berkeley CA, and to pay Noah 49 times the cost--including tax but excluding tip--of Noah's meal at Zachary's in Federal Reserve notes, or in alternative means of payment accepted by Zachary's should Zachary's Pizza no longer be accepting Federal Reserve notes at the date of the dinner. This cost will be assessed as the total cost of the dinner to all, divided by the number of people present, regardless of how much pizza is consumed by or how much alcohol is drunk by specific individuals.

The very intelligent and thoughtful David Beckworth, Simon Wren-Lewis, and Nick Rowe are agreeing on New Keynesian-Market Monetarist monetary-fiscal convergence. Underpinning all of their analyses there seems to me to be the assumption that all aggregate demand shortfalls spring from the same deep market failures. And I think that that is wrong.

Simon Wren-Lewis writes:

I really like David Beckworth’s Insurance proposal against ‘incompetent’ monetary policy. Here it is: 1) Target the level of nominal GDP (NGDP). 2) "The Fed and Treasury... agree... should a liquidity trap emerge anyhow... quickly work together to implement a helicopter drop...." Market Monetarists and New Keynesians [do not] suddenly agree about everything... for David this is an insurance against incompetence by the central bank, whereas Keynesians... view hitting the ZLB as unavoidable if the shock is big enough. However this difference is not critical... READ MOAR

...began an unprecedented campaign to combat the economic downturn.... A near zero federal funds rate, explicit communication regarding the forward path of the funds rate, and a balance sheet that ballooned to more than $4 trillion as of this writing. With memories of the 2008-09 financial crisis still fresh, the policies have prompted concern for their effect on financial stability.... The policies pursued by the Federal Reserve since late 2008 have... [had a] cumulative effect on life insurance companies appears to have been stabilising, as the benefit to legacy asset values and demand for new products outweighed any reaching for yield. While some money market funds did engage in reaching for yield in 2009-11, the compression in spreads in recent months has sharply limited the scope for such behaviour.... Financial-stability concerns for monetary policy should not stem from concerns about the riskiness of these sectors.

the Serbian Government had not accepted the demands which the Austrian Government were obliged to address to them in order to secure permanently the most vital Austrian interests.

Serbia showed that she did not intend to abandon her subversive aims, tending towards continuous disorder in the Austrian frontier territories and their final disruption from the Austrian Monarchy. Very reluctantly, and against their wish, the Austrian Government were compelled to take more severe measures to enforce a fundamental change of the attitude of enmity pursued up to now by Serbia.

Of course it's not a Holocaust Denial "Special Issue"! Only three of the seven articles--Greaves's "FDR's Watergate: Pearl Harbor" about how the real story is how the communists destroyed that anti-communist bulwark that was Imperial Japan, App's "The Sudeten German Tragedy" about just who were the real victims here, and North's "World War II Revisionism and Vietnam"--take the neo-Nazi line!

...against ‘incompetent’ monetary policy. Here it is.... 1) Target the level of nominal GDP (NGDP). 2) 'The Fed and Treasury sign an agreement that should a liquidity trap emerge... they would then quickly work together to implement a helicopter drop. The Fed would provide the funding and the Treasury Department would provide the logistical support to deliver the funds to households. Once NGDP returned to its targeted path the helicopter drop would end and the Fed would implement policy using normal open market operations. If the public understood this plan, it would further stabilize NGDP expectations and make it unlikely a helicopter drop would ever be needed.'... Jonathan Portes and I proposed something very like it.... Now this does not mean that Market Monetarists and New Keynesians suddenly agree about everything.... For David this is an insurance against incompetence by the central bank, whereas Keynesians are as likely to view hitting the ZLB as unavoidable if the shock is big enough. However this difference is not critical...

Emmanuel Saez:Optimal Income Transfer Programs: Intensive versus Extensive Labor Supply Responses: "When behavioral responses are concentrated along the intensive margin, the optimal transfer program is a classical Negative Income Tax program with a substantial guaranteed income support and a large phasing-out tax rate. However, when behavioral responses are concentrated along the extensive margin, the optimal transfer program is similar to the Earned Income Tax Credit with negative marginal tax rates at low income levels and a small guaranteed income. Carefully calibrated numerical simulations are provided..." Via Owen Zidar

David Beckworth:A Surprising Look Back at the Fed's QE Programs: "If anything... QE programs raised long-term financing costs for the government. One way to explain this outcome is that the QE programs actually raised expected economic growth and that pushed up treasury yields.... It is as if the term premium needed QE to stay propped up. Here is one possible explanation. The QE programs increased the economic outlook and that, in turn, reduced the risk premium on other assets. Investors, therefore, were more willing to hold other higher-yielding assets and this meant they had to be compensated more to hold the low-yielding treasuries.... By failing to restore full employment to the economy, the Fed has allowed risk premiums to stay elevated and interest rates on safe assets to stay depressed.... Now one could conclude from this that the QE programs did not make that much difference. I disagree. The evidence above suggest the Fed at least put a floor under long-term interest rates (and by implication a floor under the economy) with its QE programs.... So goodbye QE. It was good knowing you..."

Adair Turner:High tide for house prices is engulfing our economy: "A beach hut in Dorset is on sale for £250,000. The UK’s housing obsession is as great as ever.... In France, housing wealth grew from 120 per cent of national income in 1970 to 371 per cent in 2010. More than half of Canada’s wealth and all of the increase in its wealth-to-income ratio is explained by property prices.... Further technological progress, in particular in IT and telecoms, will continue to drive down the price of many goods and services. But paradoxically, an increasingly high-tech economy will be one in which the relative value of the oldest and most physical thing of all--land--will probably rise. Expectations of rising prices generate responses that make economies less stable.... Property will inevitably play a more important role in economies as incomes grow. We need to manage the consequences--and there is no silver bullet.... If the fundamental problem is that desirable property is scarce, the obvious answer is to lift planning constraints and build more houses. But more construction is no panacea: Ireland’s relaxed planning rules did not prevent a devastating property boom and bust. And the motivations that drive increased competition for desirable locations also produce strong opposition to unrestricted development.... Transport and environmental policies that enable people to live in more densely populated areas without jeopardising their quality of life could be as important to financial stability as bank capital requirements..."

Scott Sumner:Jonathan Gruber on federal exchanges and subsidies: "Several commenters pointed to a statement made by Jonathan Gruber in 2012.... 'What’s important to remember politically about this is if you’re a state and you don’t set up an exchange, that means your citizens don’t get their tax credits — but your citizens still pay the taxes that support this bill. So you’re essentially saying [to] your citizens you’re going to pay all the taxes to help all the other states in the country. I hope that that’s a blatant enough political reality that states will get their act together and realize there are billions of dollars at stake here in setting up these exchanges.'... The quote was taken out of context, and that the comments immediately preceding the quote tells a very different story: 'Yes, so these health insurance exchanges... will be these new shopping places and they’ll be the place that people go to get their subsidies for health insurance. In the law it says if the states don’t provide them the federal backstop will. The federal government has been sort of slow in putting up its backstop in part because I think they want to sort of squeeze the states to do it.' That seems to imply the federal backstops would provide health subsidies. So how can we reconcile these two statements? I believe Gruber was trying to say that the federal government was being slow in setting up the exchanges, because until they did so, those states without state exchanges would get no subsidy. Once the federal exchanges were set up, they would all get the subsidy. What I don’t understand is why commenters were providing me with the quote on top, but not the second quote, which provides important context..."

...Rich countries export--often to those same poor countries... chocolate, cars, and jewels.... Some ideas are worse than wrong: they are castrating, because they interpret the world in a way that emphasizes secondary issues--say, the availability of raw materials--and blinds societies to the more promising opportunities that may lie elsewhere.... Consider Finland.... A classical economist would argue that, given this, the country should export wood... a traditional development economist would argue that it should... add value by transforming the wood into paper or furniture.... But wood opened up a different and much richer path to development. As the Finns were chopping wood, their axes and saws would become dull and break down, and they would have to be repaired or replaced. This eventually led them to become good at producing machines that chop and cut wood.... From here, they went into other automated machines...

Barry Eichengreen:The ECB Tries Again: "In June the European Central Bank announced a series of new steps to counter deflation....

...Rather than bemoaning the failure of President Draghi & Co. to move earlier, it is more productive at this stage to ask: are the central bank's measures now up to the task?... The ECB's conventional measures, reducing its benchmark interest rate from 0.25 to 0.15 per cent and charging commercial banks 0.1 per cent on the money they deposit with the central bank, will make little difference.... Conventional monetary policy has run its course.... Thus, if policy is going to make a difference, policy will have to be unconventional. Here the ECB unveiled... one and a half... initiatives in June... 'Targeted Long-Term Refinancing Operation'... €400 billion, or some US$550 billion, cumulatively over four months. Recall that the Federal Reserve, under QE3, had been injecting $85 billion a month into U.S. financial markets before starting to taper in December. This makes TLTRO look like a substantial commitment.... The additional 'half an initiative' announced in June was that the ECB would study the possibility of security purchases.... These cautions should not be taken as a council of despair. If ECB officials conclude that the impact of TLTRO and securities purchase will be marginal, they should not give up hope; rather, they should strive to do more...

Battle demons and undead attorneys, and win souls to pay back your student loans! At the elite demonic-law firm of Varkath Nebuchadnezzar Stone, you'll depose a fallen god, find romance, and maybe even make partner, if you don't lose your own soul first.

"Choice of the Deathless" is a necromantic legal thriller by Max Gladstone, Campbell Award-nominated author of Three Parts Dead and Two Serpents Rise. The game is entirely text-based--without graphics or sound effects--and powered by the vast, unstoppable power of your imagination.

Explore a fantasy realm with a rich and evolving backstory, based on the novels published by Tor Books.

Play as male or female, gay or straight, dead or alive (or both).

Build your career on carefully reasoned contracts, or party all night with the skeletal partners at your firm.

Navigate intrigue and mystery in a world of scheming magicians and devious monsters.

On the night of 25-26 July 1944 Combat Command "A" moved west and south to a new assembly area in the vicinity of Port Hubert, France, in preparation for the St. Lo Breakout. General Bradley's plan for the aerial bombardment did not go exactly according to plan. The aerial saturation bombing was scheduled earlier, but the weather postponed it until this morning. The front line troops were pulled back a "safe distance" of 1,200 yards as the result of a compromise between General Bradley and the Army Air Corps Bomber Command. The Air Corps wanted 3,000 yards, but Bradley insisted on 800 yards, not willing to risk losing this ground to the enemy after the bombing ceased. Hindsight later proved the American casualties would have been far less had the Air Corps prevailed and increased the "safe" distance to a minimum of 3,000--or more yards.

...the one I find most intriguing is cognitive dissonance... [which] occurs in the mind of an individual when a theoretical belief system is confronted by factual evidence demonstrating outcomes contrary to what theories dictate should occur. Stated more plainly, when facts conflict with beliefs people find ways to ignore those facts, rationalizing them in a way that allows the disproven ideas to survive. John Kenneth Galbraith famously referenced cognitive dissonance before it was even called that, stating: 'Faced with the choice between changing one's mind and proving that there is no need to do so, almost everyone gets busy on the proof'....

Examples are many and varied.... Radical deregulation resulting in bad outcomes rather than the free market nirvana its believers espoused; Austrian economists warning of imminent hyperinflation and the collapse of the fiat dollar that never arrives. Rather than question the theory, the person suffering from cognitive dissonance ignores the facts in front of their very eyes and instead devises rationales for why any specific expected outcome never occurred. The blame is laid elsewhere.... It wasn't the wildly irresponsible behavior of non-bank lenders and junk mortgages securitized and rated AAA that caused the problems. Rather, it had to be something else, and if we can find a government entity to blame, so much the better.... There is a fine line between having confidence in your methodologies and living in your own private fantasy world. Like it or not, this is the human condition. Recognizing it at least gives us a chance to avoid getting caught in its pernicious grasp...

...some conceptual, some technical, and some just downright strange.... Poverty measurement that also includes tax credits (like the EITC) and non-cash benefits (like SNAP) called the Supplemental Poverty Metric... the only thing that has reduced poverty since 1967 is non-market benefits. That's it. Those advocating non-market benefits to cut poverty are not the crazy ones. Those thinking the market will do it are.... Let's just make some things clear.... Market income is not distributed according to desert (i.e. each get what they produce). Nobody produces nature, yet its massive marginal productivity flows to random private owners.... The majority of the national output each year is attributable to inherited technology and knowledge (aka TFP) that nobody alive produced.... Nobody is economically independent from the government.... If you want to make people's flow of material resources independent of the government, you must repeal property law first and foremost, the biggest government welfare program in history.... More disposable income doesn't solve all of the problems in the society, but it does solve the problem of inadequate diposable income...